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Tax debt

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  • Post published:December 3, 2019

Part 1 – self-assessment

There is a myth that I have often encountered in my professional career that failure to pay your tax on time will lead to criminal prosecution and imprisonment.

The simple fact is that prosecutions are extremely rare by HMRC and usually involve allegations of serious dishonesty or tax evasion.


Being in prison – ‘the tax bubble’

Many prisoners I speak to believe that they are somehow protected from HMRC and that their tax affairs will resolve themselves whilst in prison. Nothing could be further from the truth.

HMRC will pursue a taxpayer for self-assessment tax returns and tax outstanding, whether they are in prison or not!

HMRC, once informed that a prisoner is in prison however, will usually adopt ‘a light touch’ to tax debt and the taxpayer is then not chased until a later date when they are aware when that individual has been released from prison.

More often or not this happens when they register for employment or provide their UTR and address if they are going self-employed or just their address when employed.


The amount of tax demanded may be wrong

In approximately 95% of the tax cases that we deal with on behalf of prisoners at The Tax Academy, the amount demanded by HMRC is incorrect.

A lot of this is to do with the fact that when you enter prison, HMRC are not informed of this unless you write to them. As a result of this, HMRC quite often sees a prisoner failing to respond to them as a ‘delinquent’ taxpayer and will keep on sending letters and penalties to an incorrect address.

There is no collaboration between the Ministry of Justice and HMRC due to data protection.

Quite often the only time the taxpayer realises something is wrong is when they are released from prison and receive a Statement of Account from HMRC demanding thousands of pounds – followed up by debt recovery action.

HMRC Debt Management (HMRC DB) will be concerned not just with the payment of outstanding tax and penalties but bringing your tax affairs up to date. Even if you pay what you believe to be the correct amount of outstanding tax, HMRC DB will continue to take action against you.

Taxpayers working in the construction industry incorrectly believe that because they have paid 20% tax at source, they have satisfied their tax responsibilities. However, workers in the construction industry are mainly deemed self-employed and need to complete a self-assessment tax return.

Failure to do so will mean that penalties will accrue for each year a tax return is outstanding. The irony being that in many of the cases we deal with on behalf of prisoners, a tax refund is due!


Determination of tax by hmrc

Quite often, taxpayers find that where they have not sent a self-assessment tax return, HMRC have ‘determined’ the tax payable themselves based upon historic figures.

In many instances this is much higher than the tax due, but unfortunately this amount of tax is legally due and enforceable by HMRC.

In order to overturn a determination, you need to file your outstanding self-assessment tax return and claim Special Relief. The latter is a complex area and will be covered in a future article.


You need time to pay

The most important thing to do if you enter prison and owe tax is ether to contact HMRC directly or contact The Tax Academy CIC. Typically, HMRC will want you to complete any outstanding tax returns and some form of agreement to pay outstanding tax.

Our experience from dealing with HMRC, and highlighting the difficulties faced by individuals in prison, is they are extremely sympathetic to your plight and will in most situations defer the tax until release.

This tax though is not simply written off because you are in prison! However, this is an ideal opportunity to obtain a breakdown of your tax debt and to see as to whether it is correct or not, and to file any outstanding self-assessment tax returns.


Part 2 – tax issues and mental health

(January 2020)


Get your tax affairs in order pre-release

5 April 2019 marked the end of another tax year – 2018/19. Remember to contact The Tax Academy CIC to review your tax affairs to ensure they are up to date. There is nothing worse than being released from prison and finding that you have tax penalties and tax debt that need to be resolved with HMRC.